Benchmark T-bill rate climbs to 6.435%

Treasury bill (T-bills) rates went up yesterday due to the continued weakening of the peso against the dollar and political uncertainty ahead of the May 10 elections.

"There is fear that the Bangko Sentral ng Pilipinas (BSP) might tighten its monetary policy further as the peso remains weak," traders said.

The BSP earlier warned that it might take further steps to help protect the peso from selling pressure.

The 91-day rate, which banks use as benchmark to price loans, averaged 6.435 percent from 6.216 percent in the previous auction on a full award of P3 billion. Tenders amounted to P5.26 billion.

Deputy National Treasurer Mina Figueroa said the bigger tenders placed on the 91-day T-bills indicate market preference for short-term investment instruments amid political uncertainties in the run-up to the May 10 presidential election.

The average rate for the 182-day T-bills rose to 7.834 percent from 7.564 percent previously, with the government accepting only P2.205 billion of tenders totaling P3.105 billion. The government offered P3.5-billion worth of six-month bills.

The auction committee, on the other hand, rejected all bids for the one-year notes as banks flocked to short-term treasuries.

The Bureau of Treasury (BTr) said the rates on the 365-day notes would have gone up by 58.8 basis points from 8.384 percent had the auction committee accepted the bids application.

Figueroa said the auction committee decided to reject all bids for the one-year notes because the volume was far too low for the rates forwarded by banks. "The market was still flocking to short-term notes because of the prevailing uncertainties," Figueroa explained.

She also attributed the upward pressure on T-bill rates to the recent BSP move to raise banks’ liquidity reserve requirement by two percentage points, which was intended to take away some P30 billion in liquidity from banks.

"The market was also reacting to the increase in the banks’ liquidity reserve requirements."

According to Figueroa, the BTr had P4.5 billion worth of one-year bills on the block but tenders amounted to only P1.87 billion.

"As much as possible we want rates to remain low, at least aligned with the rates of the BSP," Figeroa said.

"If rates are high, private borrowing will be affected and we don’t want that to happen, " she added.

Figueroa said the BTr has not decided on its planned foreign bond float although she said today’s bond offer would be a factor in consideration.

"After today, we will decide on whether we will do special series," Figueroa said.

Despite the obvious preference for 91-day T-bills, the BTr, however, said the government will not shift its borrowing to these notes.

"The fact that we have a deficit means there is little point in reducing our borrowing," National Treasurer Sergio Edeza earlier said. "It’s only a matter of deciding what the mix will be between local and foreign borrowing."

However, Edeza ruled out the possibility of persistently high interest rates, saying that the rates would settle back down as soon as the perceived uncertainties are removed after the May elections.

"The market is just apprehensive right now, it doesn’t mean that this is the start of a sustained upward trend," he said.